Deutsche Asset Management. Deutsche Asset Management S.A. DWS India. Sales Prospectus and Management Regulations January 1, 2018

Transcription

1 Deutsche Asset Management Deutsche Asset Management S.A. DWS India Sales Prospectus and Management Regulations January 1, 2018

2 Deutsche Asset Management S.A. currently manages the following investment funds in accordance with Part I of the Law of December 17, 2010, on Undertakings for Collective Investment (As of November 1, 2017): Investment fund in the legal form of a fonds commun de placement (FCP) AL DWS GlobalAktiv+ ARERO Der Weltfonds Bethmann Vermögensverwaltung Ausgewogen Bethmann Vermögensverwaltung Defensiv Ausgewogen Bethmann Vermögensverwaltung Ertrag Bethmann Vermögensverwaltung Wachstum DB Advisors Emerging Markets Equities Passive DB Advisors Strategy Fund* DB Fixed Coupon Fund 2018 DB Fixed Coupon Fund 2018 II DB Portfolio* Deutsche Bank Zins & Dividende Deutsche AM Multi Asset PIR Fund Deutsche ESG European Equities Deutsche Floating Rate Notes Deutsche Multi Opportunities Deutsche USD Floating Rate Notes DWS Concept ARTS Balanced DWS Concept ARTS Conservative Investment company with variable capital (SICAV) DB DB Advisors SICAV db Advisory Multibrands db PBC db Platinum db Platinum IV db PrivatMandat Comfort DWS Concept ARTS Dynamic DWS Concept DJE Alpha Renten Global DWS Emerging Markets Bonds (Short) DWS Etoile DWS Euro-Bonds (Long) DWS Euro-Bonds (Medium) DWS Eurorenta DWS Euro Reserve DWS Garant 80 FPI DWS Global* DWS Global Equity Focus Fund DWS Global Value DWS India DWS Osteuropa DWS Rendite* DWS Rendite Optima DWS Rendite Optima Four Seasons DWS Russia DWS Strategic Balance DWS Strategic Defensive DWS Top Balance DWS Top Dynamic DB PWM DB Vermögensfondsmandat db x-trackers db x-trackers II DeAWM Fixed Maturity Deutsche Concept Deutsche Institutional DWS Türkei DWS Vermögensmandat* DWS Vola Strategy DWS Vorsorge* DWS World Protect 90 DWS Zeitwert Protect Global Emerging Markets Balance Portfolio Multi Opportunities Multi Opportunities III Multi Style Mars PAM International Fund Selection Portfolio* SOP CorporateBondsTotalReturn Südwestbank Vermögensmandat* Vermögensfondsmandat flexibel (80% teilgeschützt) Zurich* Zurich Vorsorge Premium II * Umbrella-FCP Deutsche Invest I Deutsche Invest II DWS FlexPension DWS Funds DWS Garant DWS Select

3 Information for investors in Switzerland The distribution of units of this/these collective investment scheme/s (the units) in Switzerland will be exclusively made to, and directed at, qualified investors, as defined in the Swiss Collective Investment Schemes Act of June 23, 2006 ( CISA ), as amended, and its implementing ordinance ( CISO ). Accordingly, this/these collective investment scheme/s has/have not been and will not be registered with the Swiss Financial Market Supervisory Authority FINMA. This fund document and/or any other offering materials relating to the units may be made available in Switzerland solely to qualified investors. 1. Representative in Switzerland Deutsche Asset Management Schweiz AG Hardstrasse Zurich, Switzerland 2. Paying Agent in Switzerland Deutsche Bank (Suisse) SA Place des Bergues Geneva, Switzerland 3. Location where the relevant documents may be obtained The prospectus, key investor information document, investment conditions as well as the annual and semi-annual reports (if applicable) may be obtained free of charge from the representative as well as from the paying agent in Switzerland. 4. Payment of retrocessions and rebates The Management Company and its agents may pay retrocessions as remuneration for distribution activity in respect of fund units in or from Switzerland. This remuneration may be deemed payment for the following services in particular: Distribution activity; Customer care. Retrocessions are not deemed to be rebates even if they are ultimately passed on, in full or in part, to the investors. The recipients of the retrocessions must ensure transparent disclosure and inform investors, unsolicited and free of charge, about the amount of remuneration they may receive for distribution. On request, the recipients of retrocessions must disclose the amounts they actually receive for distributing the collective investment schemes of the investors concerned. In the case of distribution activity in or from Switzerland, the Management Company and its agents may, upon request, pay rebates directly to investors. The purpose of rebates is to reduce the fees or costs incurred by the investor in question. Rebates are permitted provided that they are paid from fees received by the Management Company and therefore do not represent an additional charge on the fund assets; they are granted on the basis of objective criteria; all investors who meet these objective criteria and demand rebates are also granted these within the same time frame and to the same extent. The objective criteria for the granting of rebates by the Management Company are as follows: the volume subscribed by the investor or the total volume being hold in the collective investment scheme or, where applicable, in the product range of the promoter; the amount of the fees generated by the investor; the investment behavior shown by the investor (e.g. expected investment period); the investor s willingness to provide support in the launch phase of a collective investment scheme. At the request of the investor, the Management Company must disclose the amounts of such rebates free of charge. 5. Place of performance and jurisdiction In respect of the units distributed in or from Switzerland, the place of performance and jurisdiction is the registered office of the Representative.

4 Contents A. Sales Prospectus General Section 2 General regulations 2 Management Company 2 Depositary 2 Risk warnings 3 Investment principles 7 Risk management 10 Potential conflicts of interest 10 Money laundering prevention and data protection 11 Legal status of investors 12 Units 12 Costs 14 Fund dissolution / Changes to the management regulations 15 Taxes 15 Selling restrictions 15 Investor profiles 17 Performance 17 B. Sales Prospectus Special Section 18 DWS India C. Management Regulations 21 Legal structure FCP according to Part I of the Law of December 17, 2010, on Undertakings for Collective Investment. General information The legally dependent investment fund described in this Sales Prospectus is a Luxembourg investment fund (fonds commun de placement) organized under Part I of the Luxembourg Law on collective investment undertakings of December 17, 2010 ( Law of 2010 ), and in compliance with the provisions of Directive 2014/91/EU (amending Directive 2009/65/EC ( UCITS Directive )), Commission Delegated Regulation (EU) 2016/438 of December 17, 2015, supplementing Directive 2009/65/EC of the European Parliament and of the Council with regard to obligations of depositaries ( UCITS Regulation ), as well as the provisions of the Grand-Ducal Regulation of February 8, 2008, relating to certain definitions of the Law of December 20, 2002, on Undertakings for Collective Investment, as amended, 1 ( Grand- Ducal Regulation of February 8, 2008 ) and implementing Directive 2007/16/EC 2 ( Directive 2007/16/EC ) in Luxembourg law. With regard to the provisions contained in Directive 2007/16/EC and in the Grand-Ducal Regulation of February 8, 2008, the guidelines of the Committee of European Securities Regulators (CESR) set out in the document CESR s guidelines concerning eligible assets for investment by UCITS, as amended, provide a set of additional explanations that are to be observed in relation to the financial instruments that are applicable for UCITS falling under the UCITS Directive, as amended. 3 It is prohibited to provide any information or to make any representations other than those contained in the Sales Prospectus and in the Management Regulations. Deutsche Asset Management S.A. shall not be liable if and insofar as information or representations are supplied that diverge from the Sales Prospectus or Management Regulations. 1 Replaced by the Law of Commission Directive 2007/16/EC of March 19, 2007, implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions. 3 See CSSF circular 08/339 in the currently applicable version: CESR s guidelines concerning eligible assets for investment by UCITS March 2007, Ref.: CESR/07-044; CESR s guidelines concerning eligible assets for investment by UCITS The classification of hedge fund indices as financial indices July 2007, Ref.: CESR/

5 A. Sales Prospectus General Section General regulations Attached to this Sales Prospectus are the Management Regulations for the fund. The Sales Prospectus and Management Regulations form a unit, providing information on and explanations of one and the same subject, and therefore supplement one another. The Sales Prospectus, the Key Investor Information Document ( KIID ) and the Management Regulations, as well as the annual and semiannual reports, are available free of charge from the Management Company and the paying agents. Other important information will be communicated to unitholders in a suitable form by the Management Company. Important information will only be disclosed to the investor on the website of the Management Company funds.deutscheam.com/lu. If required in certain distribution countries, publications will also be made in a newspaper or in other means of publication required by law. In cases where it is required by Luxembourg law, publications will furthermore be made in at least one Luxemburg newspaper and, if applicable, in the Recueil Electronique des Sociétés et Associations (RESA) of the Trade and Companies Register. Management Company The fund is managed by Deutsche Asset Management S.A., Luxembourg (the Management Company ), which fulfills the requirements of Chapter 15 of the Law of 2010, and thus the provisions of the UCITS Directive. The Management Company was established on April 15, 1987, with subsequent publication in the Mémorial C taking place on May 4, Its subscribed and paid-in capital is EUR 30,677,400. The management of the investment fund includes, but is not limited to, those tasks specified in Appendix II of the Law of The Management Company may, in compliance with the regulations of the Luxembourg Law of 2010, and Regulation of the Commission de Surveillance du Secteur Financier ( CSSF ), and related circulars if applicable, delegate one or more tasks to third parties under its supervision and control. (i) Investment management The Management Company, under its responsibility and control and at its own expense, has entered into a fund management agreement for the fund with Deutsche Asset Management Investment GmbH, Frankfurt/Main, Germany. Deutsche Asset Management Investment GmbH is an investment company under German law. The contract may be terminated by any of the parties on three months notice. In this respect, fund management shall encompass the day-to-day implementation of the investment policy and direct investment decisions. The designated fund manager may delegate fund management services in whole or in part, under its supervision, control and responsibility, and at its own expense. The fund manager may also appoint investment advisors at its own expense and under its control and responsibility. The investment advisory function shall in particular encompass analysis and recommendations of suitable investment instruments for the fund s assets. The fund manager is not bound to the recommendations offered by the investment advisor. Any investment advisors designated by the fund manager are listed under Management and Administration. The designated investment advisors have the corresponding supervisory approvals. (ii) Administration, registrar and transfer agent The first responsibility of the Management Company, Deutsche Asset Management S.A., is to perform central administration functions, in particular fund bookkeeping and net asset value calculation. In addition, Deutsche Asset Management S.A. is responsible for the remaining administrative tasks. These include, among other things, the retrospective monitoring of investment limits and restrictions as well as the functions of domiciliary agent and registrar and transfer agent. With regard to the function as registrar and transfer agent, Deutsche Asset Management S.A. has entered into a sub-transfer agent agreement with State Street Bank GmbH in Munich, Germany. Within the scope of this agreement, State Street Bank GmbH in particular assumes the duties of managing the global certificate, which is deposited with Clearstream Banking AG in Frankfurt/Main, Germany. (iii) Distribution Deutsche Asset Management S.A. acts as the main distributor. Deutsche Asset Management S.A. may enter into nominee agreements with credit institutions, Professionals of the Financial Sector ( PSF ) in Luxembourg and/or comparable entities under the laws of other countries that are under obligation to identify unitholders. The nominee agreements give the respective institutions the right to sell units and be entered as nominees in the register of units. The names of the nominees can be requested from Deutsche Asset Management S.A. at any time. The nominee shall accept buy, sell and exchange orders from the investors it works for and arrange for the required changes to be made in the register of units. In this capacity, the nominee is particularly required to take into account any special prerequisites governing the purchase of units of a respective unit class. If there are no conflicting practical or legal considerations, an investor who acquired units through a nominee can submit a written declaration to Deutsche Asset Management S.A. or the transfer agent demanding that he himself be entered into the register as a unitholder once all necessary proofs of identity have been supplied. Special notice The Management Company draws investors attention to the fact that any investor can only be able to fully exercise his investor rights directly against the fund if the investor subscribed the fund units himself and in his own name. In cases where an investor invests in the fund through an intermediary, investing into the fund in his own name but on behalf of the investor, it may not always be possible for the investor to exercise certain unitholder rights directly against the fund. Investors are advised to take advice on their rights. Depositary The Depositary is State Street Bank Luxembourg S.C.A. It is a partnership limited by shares incorporated under Luxembourg law. Its particular duty is to hold in safe-keeping the assets of the funds. In addition, the Depositary performs special monitoring tasks. The Depositary has been entrusted with following main functions: ensuring that the sale, issue, repurchase, redemption and cancellation of units are carried out in accordance with applicable law and the Management Regulations; ensuring that the value of the units is calculated in accordance with applicable law and the Management Regulations; carrying out the instructions of the Management Company unless they conflict with applicable law and the Management Regulations; ensuring that in transactions involving the assets of the fund any consideration is remitted within the usual time limits; ensuring that the income of the fund is applied in accordance with applicable law and the Management Regulations; monitoring of the fund s cash and cash flows; safe-keeping of the fund s assets, including the safekeeping of financial instruments to be held in custody and ownership verification and record keeping in relation to other assets. Depositary s liability In the event of a loss of a financial instrument held in custody, determined in accordance with the UCITS Directive, and in particular article 18 of the UCITS Regulation, the Depositary shall return financial instruments of identical type or the corresponding amount to the Management Company acting on behalf of the fund without undue delay. 2

6 The Depositary shall not be liable if it can prove that the loss of a financial instrument held in custody has arisen as a result of an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary pursuant to the UCITS Directive. In case of a loss of financial instruments held in custody, the unitholders may invoke the liability of the Depositary directly or indirectly through the Management Company, provided that this does not lead to a duplication of redress or to unequal treatment of the unitholders. The Depositary will be liable to the fund for all other losses suffered by the fund as a result of the Depositary s negligent or intentional failure to properly fulfil its obligations pursuant to the UCITS Directive. The Depositary shall not be liable for consequential or indirect or special damages or losses, arising out of or in connection with the performance or non-performance by the Depositary of its duties and obligations. Delegation The Depositary has full power to delegate the whole or any part of its safe-keeping functions, but its liability will not be affected by the fact that it has entrusted to a third party some or all of the assets in its safekeeping. The Depositary s liability shall not be affected by any delegation of its safe-keeping functions under the depositary agreement. The Depositary has delegated those safekeeping duties set out in article 22(5)(a) of the UCITS Directive to State Street Bank and Trust Company with registered office at Copley Place 100, Huntington Avenue, Boston, Massachusetts 02116, USA, whom it has appointed as its global subcustodian. State Street Bank and Trust Company as global sub-custodian has appointed local sub-custodians within the State Street Global Custody Network. Information about the safe-keeping functions, which have been delegated, and the identification of the relevant delegates and sub-delegates are available at the registered office of the Management Company or at the following internet site: office-locations/luxembourg/subcustodians.html. Unit classes The investor can be offered one or more unit classes at the sole discretion of the Management Company. All unit classes of the fund will be invested together in line with the investment objectives of the fund but may, however, differ especially with regard to their fee structure, the provisions for the minimum investment amount upon initial subscription and for subsequent subscriptions, the currency, the distribution policy, the requirements to be fulfilled by the investors or other special features, such as hedging, as determined in each case by the Management Company. The net asset value per unit is calculated separately for each issued unit class of the fund. The fund does not manage a separate portfolio for the individual unit classes. The Management Company reserves the right to offer only one or only certain unit classes for sale to investors in certain jurisdictions in order to comply with the legal requirements, customs and business practices. The Management Company further reserves the right to establish principles to apply to certain investor categories or transactions with respect to the acquisition of certain unit classes. The unit classes LC and TFC are offered for the fund. The unit classes LC and TFC are denominated in EUR. Further information on currently launched unit classes is available on the internet at funds.deutscheam.com/lu. Possible currency influences for unit classes in a currency other than the base currency: If unit classes are offered in a currency other than the base currency (e.g., a fund in euro that offers a unit class in U.S. dollars), attention is drawn to the fact that possible currency influences on the net asset value per unit are not systematically hedged. These currency impacts are related to the time lags in the required processing and booking of orders in a non-base currency, which may lead to exchange rate fluctuations. In particular, this is true for redemption orders. The possible influences on the net asset value per unit may be positive or negative and are not limited to the relevant unit class that is denominated in a currency other than the base currency, i.e., they can affect the respective fund and all of the unit classes it contains. Description of the designators At present, the fund generally offers unit classes with different characteristics, which can be recognized from the designators described below: Type of investor The designator L indicates the type of investor the unit class is offered to. Unit classes bearing the L designator are available to individual investors. The unit of the trailer free (TF) unit classes are only available to investors: who subscribe units through distributors domiciled in the United Kingdom or the Netherlands, or who subscribe units through distributors domiciled in other countries, who have separate fee arrangements with their distributor regarding independent advisory services or discretionary portfolio management, or considered as institutional investors in accordance with article 174 (2) of the Law of Pursuant to the administrative practice in Luxembourg institutional investors include in particular credit institutions and other professionals of the financial sector; (re-) insurance companies; social security institutions; pension funds/plans (provided that the beneficiaries of such pension funds/plans are not entitled to any direct holding of units of the fund); undertakings for collective investment ( UCI ); local authorities, such as the governing bodies of regions, provinces, cantons and municipalities (insofar as they invest their own funds); holding companies or similar companies; foundations. For the TF unit class, the Management Company does not pay any trailer fees to the distributors. Subsequently, the costs of this unit class borne by the investor may be lower than the costs of other unit classes within the same fund. Allocation of income For unit classes with the designator C, the income is reinvested (reinvesting units). Unit classes with the designator D indicate that the income is distributed (distributing units). Risk Warnings Investing in the units involves risks. These can encompass or involve equity or bond market risks, interest rate, credit, default, liquidity and counterparty risks as well as exchange rate, volatility, or political risks. Any of these risks may also occur in conjunction with other risks. Some of these risks are addressed briefly below. Potential investors should possess experience of investing in instruments that are employed within the scope of the proposed investment policy. Investors should also have a clear picture of the risks involved in investing in the units and should not make a decision to invest until they have fully consulted their legal, tax and financial advisors, auditors or other advisors about (i) the suitability of investing in the units, taking into account their personal financial and tax situation and other circumstances, (ii) the information contained in this Sales Prospectus, and (iii) the fund s investment policy. It must be noted that investments made by a fund also contain risks in addition to the opportunities for price increases. The fund s units are securities, the value of which is determined by the price fluctuations of the assets contained in the fund. Accordingly, the value of the units may rise or fall in comparison with the purchase price. No assurance can therefore be given that the investment objectives will be achieved. 3

7 Market risk The price or market performance of financial products depends, in particular, on the performance of the capital markets, which in turn are affected by the overall economic situation and the general economic and political framework in individual countries. Irrational factors such as sentiment, opinions and rumors have an effect on general price performance, particularly on an exchange. Credit risk The credit quality (ability and willingness to pay) of the issuer of a security or money-market instrument held directly or indirectly by the fund may subsequently decline. This usually leads to price drops in the individual security in excess of the usual market fluctuations. Country or transfer risk A country risk exists when a foreign borrower, despite ability to pay, cannot make payments at all, or not on time, because of the inability or unwillingness of its country of domicile to execute transfers. This means that, for example, payments to which the fund is entitled may not occur, or be in a currency that is no longer convertible due to restrictions on currency exchange. Settlement risk Especially when investing in unlisted securities, there is a risk that settlement via a transfer system is not executed as expected because a payment or delivery did not take place in time or as agreed. Legal and tax risk The legal and tax treatment of funds may change in ways that cannot be predicted or influenced. In the case of a correction with tax consequences that are essentially disadvantageous for the investor, changes to the fund s taxation bases for preceding fiscal years made because these bases are found to be incorrect can result in the investor having to bear the tax burden resulting from the correction for preceding fiscal years, even though he may not have held an investment in the investment fund at the time. Conversely, the investor may fail to benefit from an essentially advantageous correction for the current or preceding fiscal years during which he held an investment in the investment fund if the units are redeemed or sold before the correction takes place. In addition, a correction of tax data can result in a situation where taxable income or tax benefits are actually assessed for tax in a different assessment period to the applicable one and that this has a negative effect for the individual investor. Currency risk To the extent the fund invests in assets denominated in currencies other than the fund currency, the fund will receive income, repayments and proceeds from such investments in the respective currency. If the value of these currencies depreciates in relation to the fund currency, the value of the fund s assets is reduced. Custody risk The custody risk describes the risk resulting from the basic possibility that, in the event of insolvency, violation of due diligence or improper conduct on the part of the Depositary or any sub-depositary, the fund may, in whole or in part and to its detriment, be deprived of access to the investments held in custody. Company-specific risk The price performance of the securities and money market instruments held directly or indirectly by the fund is also dependent on company-specific factors, for example on the business situation of the issuer. If the companyspecific factors deteriorate, the market value of the individual security may significantly and persistently decline, even if the market is performing strongly in general. Concentration risk Additional risks may arise from a concentration of investments in particular assets or markets. The fund then becomes particularly heavily dependent on the performance of these assets or markets. Risk of changes in interest rates Investors should be aware that investing in units may involve interest rate risks. These risks may occur in the event of interest rate fluctuations in the denomination currency of the securities or the fund. Legal and political risks Investments may be made for the fund in jurisdictions in which Luxembourg law does not apply, or, in the event of legal disputes, the place of jurisdiction is located outside of Luxembourg. The resulting rights and obligations of the Management Company for the account of the fund may vary from its rights and obligations in Luxembourg, to the detriment of the fund and/or the investor. The Management Company may be unaware of political or legal developments (or may only become aware of them at a later date), including amendments to the legislative framework in these jurisdictions. Such developments may also lead to limitations regarding the eligibility of assets that may be, or already have been, acquired. This situation may also arise if the Luxembourg legislative framework governing the Management Company and/or the management of the fund is amended. Operational risk The fund may be exposed to a risk of loss, which can arise, for example, from inadequate internal processes and from human error or system failures at the Management Company or at external third parties. These risks can affect the performance of a fund, and can thus also adversely affect the net asset value per unit and the capital invested by the investor. Inflation risk All assets are subject to a risk of devaluation through inflation. Key individual risk The exceptionally positive performance of certain funds during a particular period is also attributable to the abilities of the individuals acting on behalf of such funds, and therefore to the correct decisions made by their respective fund management. Fund management personnel can change, however. New decision-makers might not be as successful. Change in the investment policy The risk associated with the fund may change in terms of content due to a change in the investment policy within the range of investments permitted for the fund. Changes to the Management Regulations; liquidation or merger In accordance with the Management Regulations for the fund, the Management Company reserves the right to change the Management Regulations. In addition, the Management Company may, in accord ance with the provisions of the Management Regulations, liquidate the fund entirely or merge it with another investment fund. For the investor, this entails the risk that the holding period planned by the investor will not be realized. Credit risk Bonds or debt instruments involve a credit risk with regard to the issuers, for which the issuer s credit rating can be used as a benchmark. Bonds or debt instruments issued by issuers with a lower rating are generally viewed as securities with a higher credit risk and greater risk of default on the part of the issuer than those instruments that are issued by issuers with a better rating. If an issuer of bonds or debt instruments runs into financial or economic difficulties, this can affect the value of the bonds or debt instruments (this value could drop to zero) and the payments made on the basis of these bonds or debt instruments (these payments could drop to zero). Additionally, some bonds or debt instruments are subordinated in the financial structure of an issuer, so that in the event of financial difficulties, the losses can be severe and the likelihood of the issuer meeting these obligations may be lower than other bonds or debt instruments, leading to greater volatility in the price of these instruments. 4

8 Risk of default In addition to the general trends on capital markets, the particular performance of each individual issuer also affects the price of an investment. The risk of a decline in the assets of issuers, for example, cannot be eliminated even by the most careful selection of the securities. Risks connected to derivative transactions Buying and selling options, as well as the conclusion of futures contracts or swaps (including total return swaps), involves the following risks: Price changes in the underlying instrument can cause a decrease in the value of the option or futures contract, and even result in a total loss. A decrease in the value of the fund assets can result therefrom. Changes in the value of the asset underlying a swap or a total return swap can also result in losses for the fund assets. Any necessary back-to-back transactions (closing of position) incur costs which can cause a decrease in the value of the fund assets. The leverage effect of options, swaps, futures contracts or other derivatives may alter the value of the fund assets more strongly than the direct purchase of the underlying instruments would. The purchase of options entails the risk that the options are not exercised because the prices of the underlying instruments do not change as expected, meaning that the fund assets lose the option premium they paid. If options are sold, there is the risk that the fund may be obliged to buy assets at a price that is higher than the current market price, or obliged to deliver assets at a price which is lower than the current market price. In that case, the fund will suffer from a loss amounting to the price difference minus the option premium collected. Futures contracts also entail the risk that the fund assets may make losses due to market prices not having developed as expected at maturity. Risk connected to the acquisition of shares/units of investment funds When investing in shares/units of target funds, it must be taken into consideration that the fund managers of the individual target funds act independently of one another and that therefore multiple target funds may follow investment strategies which are identical or contrary to one another. This can result in a cumulative effect of existing risks, and any opportunities might be offset. Risks relating to investments in contingent convertibles Contingent convertibles ( CoCos ) are a form of hybrid capital security that are from the perspective of the issuer part of certain capital requirements and capital buffers. Depending on their terms and conditions, CoCos intend to either convert into equity or have their principal written down upon the occurrence of certain triggers linked to regulatory capital thresholds or the conversion event can be triggered by the supervisory authority beyond the control of the issuer, if supervisory authorities question the continued viability of the issuer or any affiliated company as a going-concern. After a trigger event, the recovery of the principal value mainly depends on the structure of the CoCo, according to which nominal losses of the CoCo can be fully or partially absorbed using one of the three different methodologies: Equity Conversion, Temporary Write-Down or Permanent Write-Down. In case of temporary writedown feature, the write-down is fully discretionary and subject to certain regulatory restrictions. Any distributions of remaining capital payable after the trigger event will be based on the reduced principal. A CoCo investor may suffer losses before equity investors and other debt holders in relation to the same issuer. CoCo terms structures may be complex and may vary from issuer to issuer and bond to bond, following minimum requirements as laid out in the EU Capital Requirements Directive IV/Capital Requirements Regulation (CRD IV/CRR). There are additional risks which are associated with investing in CoCos like: a) Risk of falling below the specified trigger level (trigger level risk) The probability and the risk of a conversion or of a write-down are determined by the difference between the trigger level and the capital ratio of the CoCo issuer currently required for regulatory purposes. The mechanical trigger is at least 5.125% of the regulatory capital ratio or higher, as set out in the issue prospectus of the respective CoCo. Especially in the case of a high trigger, CoCo investors may lose the capital invested, for example in the case of a write-down of the nominal value or conversion into equity capital (shares). At fund level, this means that the actual risk of falling below the trigger level is difficult to assess in advance because, for example, the capital ratio of the issuer may only be published quarterly and therefore the actual gap between the trigger level and the capital ratio is only known at the time of publication. b) Risk of suspension of the coupon payment (coupon cancellation risk) The issuer or the supervisory authority can suspend the coupon payments at any time. Any coupon payments missed out on are not made up for when coupon payments are resumed. For the CoCo investor, there is a risk that not all of the coupon payments expected at the time of acquisition will be received. c) Risk of a change to the coupon (coupon calculation/reset risk) If the CoCo is not called by the CoCo issuer on the specified call date, the issuer can redefine the terms and conditions of issue. If the issuer does not call the CoCo, the amount of the coupon can be changed on the call date. d) Risk due to prudential requirements (conversion and write down risk) A number of minimum requirements in relation to the equity capital of banks were defined in CRD IV. The amount of the required capital buffer differs from country to country in accordance with the respective valid regulatory law applicable to the issuer. At fund level, the different national requirements have the consequence that the conversion as a result of the discretionary trigger or the suspension of the coupon payments can be triggered accordingly depending on the regulatory law applicable to the issuer and that an additional uncertainty factor exists for the CoCo investor, or the investor, depending on the national conditions and the sole judgment of the respective competent supervisory authority. Moreover, the opinion of the respective supervisory authority, as well as the criteria of relevance for the opinion in the individual case, cannot be conclusively assessed in advance. e) Call risk and risk of the competent supervisory authority preventing a call (call extension risk) CoCos are perpetual long-term debt securities that are callable by the issuer at certain call dates defined in the issue prospectus. The decision to call is made at the discretion of the issuer, but it does require the approval of the issuer s competent supervisory authority. The supervisory authority makes its decision in accordance with applicable regulatory law. The CoCo investor can only resell the CoCo on a secondary market, which in turn is associated with corresponding market and liquidity risks. 5

9 f) Equity risk and subordination risk (capital structure inversion risk) In the case of conversion to equities, CoCo investors become shareholders when the trigger occurs. In the event of insolvency, claims of shareholders may have subordinate priority and be dependent on the remaining funds available. Therefore, the conversion of the CoCo may lead to a total loss of capital. g) Industry concentration risk Industry concentration risk can arise from uneven distribution of exposures to financials due to the specific structure of CoCos. CoCos are required by law to be part of the capital structure of financial institutions. h) Liquidity risk CoCos bear a liquidity risk in stressed market conditions due to a specialized investor base and lower overall market volume compared to plain-vanilla bonds. i) Yield valuation risk Due to the callable nature of CoCos it is not certain what calculation date to use in yield calculations. At every call date there is the risk that the maturity of the bond will be extended and the yield calculation needs to be changed to the new date, which can result in a yield change. j) Unknown risk Due to the innovative character of the CoCos and the ongoing changing regulatory environment for financial institutions, there could occur risks which cannot be foreseen at the current stage. For further details, please refer to the ESMA statement (ESMA/2014/944) from July 31, 2014 Potential Risks Associated with Investing in Contingent Convertible Instruments. Liquidity risk Liquidity risks arise when a particular security is difficult to dispose of. In principle, acquisitions for the fund shall only consist of securities that can be sold again at any time. Nevertheless, it may be difficult to sell particular securities at the desired time during certain phases or in particular exchange segments. There is also the risk that securities traded in a rather narrow market segment will be subject to considerable price volatility. Counterparty risk Risks may arise for the fund as a result of a contractual commitment with another party (a counterparty ). In this context, there is a risk that the contracting party will no longer be able to fulfil its contractual obligations. These risks may compromise the fund s performance, and may therefore have a detrimental effect on the units` value and the capital invested by the investor. When the fund conducts over-the-counter (OTC) transactions, it may be exposed to risks relating to the credit standing of its counterparties and to their ability to fulfil the conditions of the contracts it enters into with them. The fund may consequently enter into futures, options and swap transactions or use other derivative techniques, for example total return swaps, which will expose the fund to the risk of a counterparty not fulfilling its obligations under a particular contract. In the event of a bankruptcy or insolvency of a counterparty, the fund could experience delays in liquidating the position and significant losses, including declines in the value of its investment during the period in which the fund seeks to enforce its rights, inability to realize any gains on its investment during such period and fees and expenses incurred in enforcing its rights. There is also a possibility that the above agreements and derivative techniques are terminated due, for instance, to bankruptcy, supervening illegality or change in the tax or accounting laws relative to those at the time the agreement was originated. Funds may participate in transactions on overthe-counter markets and interdealer markets. The participants in such markets are typically not subject to credit evaluation and regulatory oversight as are members of exchange-based markets. To the extent a fund invests in swaps, derivative or synthetic instruments, or other over-the-counter transactions, on these markets, such fund may take credit risk with regard to parties with whom it trades and may also bear the risk of settlement default. These risks may differ materially from those entailed in exchangetraded transactions which generally are backed by clearing organisation guarantees, daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Trans actions entered directly between two counterparties generally do not benefit from such protections. This exposes the fund to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the fund to suffer a loss. Such counterparty risk is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where the fund has concentrated its transactions with a single or small group of counterparties. In addition, in the case of a default, the fund could become subject to adverse market movements while replacement transactions are executed. The-fund is not restricted from dealing with any particular counterparty or from concentrating any or all of their transactions with one counterparty. The ability of the fund to transact business with any one or number of counterparties, the lack of any meaningful and independent evaluation of such counterparties financial capabilities and the absence of a regulated market to facilitate settlement may increase the potential for losses by the fund. Risks related to securities lending and (reverse) repurchase agreements If the other party to a (reverse) repurchase agreement or securities lending transaction should default, the fund might suffer a loss to the extent that the proceeds from the sale of the underlying securities and/or other collateral held by the fund in connection with the securities lending transaction or (reverse) repurchase agreement are less than the repurchase price or, as the case may be, the value of the underlying securities. In addition, in the event of bankruptcy or similar proceedings of the party to a (reverse) repurchase agreement or a securities lending transaction or its failure otherwise to perform its obligations on the repurchase date, the fund could suffer losses, including loss of interest on or principal of the securities and costs associated with delay and enforcement of the (reverse) repurchase agreement or securities lending transaction. Although it is expected that the use of repurchase agreements, reverse repurchase agreements and securities lending transactions will generally not have a material impact on a fund s performance, the use of such techniques may have a significant effect, either negative or positive, on a fund s NAV. Risks associated with the receipt of collateral The fund may receive collateral for OTC derivatives transactions, securities lending transactions and reverse repurchase agreements. Derivatives, as well as securities lent and sold, may increase in value. Therefore, collateral received may no longer be sufficient to fully cover the fund s claim for delivery or redemption of collateral against a counterparty. The fund may deposit cash collateral in blocked accounts, or invest it in high quality government bonds or in money market funds with a shortterm maturity structure. Though, the credit institution that safe keeps the deposits may default; the performance of government bonds and money market funds may be negative. Upon completion of the transaction, the collateral deposited or invested may no longer be available to the full extent, although the fund is obligated to redeem the collateral at the amount initially granted. Therefore, the fund may be obliged to increase the collateral to the amount granted and thus compensate the losses incurred by the deposit or investment of collateral. Risks associated with collateral management Collateral management requires the use of systems and certain process definitions. Failure of processes as well as human or system errors at the level of the Management Company or third-parties in relation to collateral management could entail the risk that assets, serving as 6

10 collateral, lose value and are no longer sufficient to fully cover the fund s claim for delivery or transfer back of collateral against a counterparty. Investment principles Investment policy The fund s assets shall be invested in compliance with the principle of risk-spreading and pursuant to the investment policy principles laid down in the special section of this Sales Prospectus and in accordance with the investment options and restrictions of article 4 of the Management Regulations. Performance benchmark The fund may use a financial index as performance benchmark for performance comparison purposes only and will not attempt to replicate the investment positions of such index. If a performance benchmark is used for the fund, further information may be founds in the special section of the Sales Prospectus. If a financial index is used for investment strategy purposes, the investment policy of the fund will reflect such approach (see also section Use of financial indices of this Sales Prospectus). Efficient portfolio management techniques According to CSSF Circular 14/592 efficient portfolio management techniques can be used for the fund. These include all sorts of derivative transactions as well as securities lending transactions and (reverse) repurchase agreements (securities financing transactions). Other securities financing transactions than the types mentioned here, such as margin-lending transactions, buy-sell-back transactions and sell-buy-back transactions, are currently not used. Should the Management Company make use of these types of securities financing transactions in future, the Sales Prospectus shall be amended accordingly. Securities financing transactions shall be used in accordance with legal provisions, especially the provisions of the Regulation (EU) 2015/2365 of the European Parliament and of the Council of November 25, 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (the SFTR ). Use of derivatives The fund may provided an appropriate risk management system is in place invest in any type of derivative admitted by the Law of 2010 that is derived from assets that may be purchased for the fund or from financial indices, interest rates, exchange rates or currencies. In particular, this includes options, financial futures contracts and swaps (including total return swaps), as well as combinations thereof. Their use needs not to be limited to hedging the fund s assets; they may also be part of the investment strategy. Trading in derivatives is conducted within the confines of the investment limits and provides for the efficient management of the fund s assets, while also regulating investment maturities and risks. Swaps The Management Company may conduct the following swap transactions for the account of the fund within the scope of the investment principles notably including the following (without limitation): interest-rate swaps, currency swaps, equity swaps, total return swaps or credit default swaps. Swap transactions are exchange contracts in which the parties swap the assets or risks underlying the respective transaction. Total Return Swaps A total return swap is a derivative whereby one counterparty transfers to another counterparty the total return of a reference liability including income from interest and charges, gains and losses from price fluctuations, as well as credit losses. As far as the fund employs total return swaps or other derivatives with similar characteristics which are essential for the implementation of the investment strategy of the fund, information will be provided in the special section of the Sales Prospectus as well as the annual report on issues such as the underlying strategy or the counterparty. Total return swaps shall be used in accordance with legal provisions, especially the provisions of the SFTR. Swaptions Swaptions are options on swaps. A swaption is the right, but not the obligation, to conduct a swap transaction, the terms of which are precisely specified, at a certain point in time or within a certain period. Credit default swaps Credit default swaps are credit derivatives that enable the transfer of a volume of potential credit defaults to other parties. As compensation for accepting the credit default risk, the seller of the risk (the protection buyer) pays a premium to its counterparty. In all other aspects, the information for swaps applies accordingly. Financial instruments certificated in securities The Management Company may also acquire the financial instruments described above if they are certificated in securities. The transactions pertaining to financial instruments may also be just partially contained in such securities (e.g. warrant- linked bonds). The statements on opportunities and risks apply accordingly to such securitized financial instruments, but with the condition that the risk of loss in the case of securitized instruments is limited to the value of the security. OTC derivative transactions The Management Company may conduct both those derivative transactions admitted for trading on an exchange or included in another organized market and over-the-counter (OTC) transactions. It shall include a process for accurate and independent assessment of the value of OTC derivative instruments. Securities lending and (reverse) repurchase transactions (securities financing transactions) The fund is allowed to transfer securities from its own assets for a certain time to the counterparty against compensation at market rates. The fund ensures that it is able to recall any security that has been lent out or terminate any securities lending agreement into which it has entered at any time. a) Securities Lending and Borrowing Unless further restricted by the investment policies of the fund as described in the special section below, the fund may enter into securities lending and borrowing transactions. The applicable restrictions can be found in CSSF Circular 08/356 as amended from time to time. As a general rule, securities lending and borrowing transactions may only be performed in respect of eligible assets under the Law of 2010 and the fund s investment principles. Those transactions may be entered into for one or more of the following aims: (i) reduction of risk, (ii) reduction of cost and (iii) generation of additional capital or income with a level of risk which is consistent with the risk profile of the fund and the applicable risk diversification rules. Under normal circumstances, up to 80% of the fund s securities may be transferred to counterparties by means of securities lending transactions. However, depending on market demand, the Management Company reserves the right to transfer up to 100% of a fund s securities to counterparties as a loan. An overview of the actual current utilization rates is available on the Management Company s website at funds.deutscheam.com/lu. 7